China – Index Without A Shares Would “Make No Sense”

The exact components of the MSCI Inc. index are due to be announced soon, and a Chinese official has said that if the index excludes yuan-dominated A shares it would “make no sense.”

Paris, France, July 19, 2016 — “We believe that the MSCI will eventually include A shares. It is an absolute certainty, it’s just a matter of time,” said Qi Bin, head of the China Securities Regulatory Commission international affairs department.

The comments came at a government sponsored event in Shanghai’s main financial district, and many of the nation’s top banking and financial regulatory figures were present.

“In a theoretical sense, you can’t have a true index without A shares as it is one of the world’s largest markets, both in the sense of growth and size.” Said Qi.

This year, however, A shares have performed poorly and any decision to add them to the MSCI would be a welcome boost and could attract significant inflows of investment. Qi’s comments are the first real attempt by China’s government to influence the New York based index.

Last month, the Shanghai and Shenzhen exchanges proclaimed new guidelines which partly restricted arbitrary trading halts. The MSCI saw this as a possible sticking point regarding the admittance of A shares into the index as suspensions of trading halts paralysed the market last year as Chinese officials scrambled to block a multi-trillion dollar sell off.

Qi remarked that the CSRC were attempting to improve the trading halt regulations in order to stop those kinds of issues.

Another member of the commission dropped hints about a much talked about link between the Shenzhen and Hong Kong stock markets. CSRC Vice Chairman Jiang Yang said the link up would be “similar to Shanghai bourse-Hong Kong” and that there is “no set time” for the introduction of the partnership.

Qi also mentioned that a third link is being considered between Shanghai and London, but did not go into any further details, although experts believe the inclusion of A shares into the MSCI would help facilitate the link.

“At the moment both sides are looking very closely at the feasibility of a London to Shanghai stock market link,” said Steve Rogers, Director of Asset Allocation at Orix Capital Trading. “There are various complications with online services that will need to be ironed out and I think the possibility of any link being introduced this year is remote. An A share introduction into the MSCI would be a notable positive factor.”